Welcome to the Bilia Q2 report for 2023. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now I will hand the conference over to IR, Carl Fredrik Ewetz. Please go ahead.
Thank you very much for that introduction. A warm welcome to Bilia's Q2 results presentation with CEO Per Avander, CFO Kristina Franzén, and myself. The agenda looks pretty much as last quarter, with one addition, and that's we're showing the operational earnings separately for each country. Let's start with how we see the current market or the current market industry, and I'll leave the word to Per Avander.
Thank you very much, Carl Fredrik. Page number 3 and the current market situation in the car industry. There is a very good demand in the service business with long booking times. New cars have a weaker demand, especially for pure electrical vehicles. The government in Sweden stopped the climate bonus in the end of the last year. In Norway, they have added VAT for cars over NOK 500,000, which means more expensive cars. Fleet business is much more stable, and there is a still high demand. The industry has still a strong order backlog of new cars in Sweden and Western Europe. What I mean with Western Europe is Belgium and Luxembourg, there we have operation with BMW and MINI. In Norway, it's a more normalized level. Norway has a challenging business climate.
I mentioned tax regulations. Another challenge is the cancellation of orders. The third is price reductions of new cars, which leads to lower margin in the used cars business. The demand for used cars are on a good level. It's a higher level than last year. It's still a consolidation of dealers in the industry. Some brands started many years ago, for example, BMW. They reduced from 22 dealers to 6 dealers in Sweden. Others will follow. For example, Toyota will start in the end of this year. It's a lot of discussions on new business models, especially agency model. It's already introduced with Mercedes-Benz and Volkswagen light commercial vehicles in Sweden. For Mercedes-Benz, we are a pilot market in Sweden. Several brand will follow, and we have a lot of negotiations and discussions for the moment.
Both Porsche and Toyota have confirmed that they will not implement agency model. Please go to the next slide. Net turnover increased due to higher deliveries of cars and growth in the service business. We report for Bilia Group result of 445 million SEK and a margin of 4.5%. Bear in mind, we have some divested operations in Sweden and Norway. In Norway, we sold our Volvo business in Oslo area last summer. It was 3 outlets. In Sweden and Western Europe, we report the best quarter two result ever. I will get back to that on the next slide. In Norway, we report a lower profitability due to both car and the service business, as I mentioned, divested operations. I will get back to the Norwegian market.
On this slide, you can see Q2 results from 2019-2023. On the left-hand side, you can see the Swedish operations. If you go back 5 years ago, we had a profitability of SEK 220 million, and this quarter, SEK 369 million. On the right-hand side, you can see the Western Europe, and the same, SEK 19 million, SEK 25 million, and today, SEK 61 million. Really strong profitability in both Sweden and Western Europe. I will get back to Norwegian result on the next slides. Please go to the service business. Continued good demand in the service business with long booking times, much better compared with the same period last year. Right now, we are hiring more mechanics. We have an organic growth of 10%. It's a historical strong figure.
Higher earnings than last year, considering divested operations. Really good levels in both Sweden and Western Europe, with a margin at the same level as last year in Sweden and a better margin in Western Europe. Norway reported a lower earning compared to the last year. It depends on different reasons. One is, as I've told already, divested operations in Oslo area. Another is a brand new dismantling facilities of West Oslo. The name is Røyken. A third reason is that we moved a body and paint shop, which means a lot of cost without any production. We also have had cost levels on rents and energy, high costs of that.
We have already taken a lot of actions, for example, cost reduction, and we have a centralized business excellence team from Sweden helping our managers in workshop and spare parts departments. We go to the car business. Deliveries on new and used cars, adjusted for divested and acquired operations, were 10 per- and 2% higher. We had a result of close to SEK 100 million, and for the used cars, we were a little bit over SEK 100 million compared to SEK 120 million last year. In a historical perspective, it's a really high level for the used car business. Ordering intake on new cars, adjusted for divested operations, were 41% lower. Norway decline with 78%. Western Europe increased the new car sales with 22% compared to the same period last year.
It's 2 different markets we are operating in. We have a good level of order backlog, which is 20,000 new cars. The normal level for Bilia Group is around 13,000-14,000 new cars. Go over to Kristina.
Thank you, Per. We move over to the financial position at the end of the quarter. During the second quarter, we generated a solid operating cash flow of NOK 590 million, and thereby we recovered the negative cash flow that were occurred in the first quarter. We will, during the coming quarters, continue our focus on working capital, where we, as you might have remembered, from the last report for the first quarter, have had a higher working capital due to the push on electrical vehicles that we had around year-end, partly caused by the tax changes that Per mentioned earlier. That meant that at the end of the quarter, we utilized around SEK 1 billion of our available credit limits of SEK 2.5 billion.
We have not had any cash flow from payments from acquisitions during the quarter, but have paid our first installment of dividend, amounting to around 200 kronor. There will be another three installments relating to the decided dividend that amounts to 8.80 kronor per share. If we move on to the net debt, it amounted to SEK 2.2 billion, and in relation to EBITDA, it remains on a stable level of 1.1 times, which is well below our financial target of 2.0 times. Finally, during the quarter, we have successfully refinanced our SEK 800 million bond, which had an ordinary maturity date in October this year. Our new bond have a five-year duration time, meaning that it has a maturity in 2028, and was refinanced at terms on the level we expected.
With that, I think that's where we are on the financial position.
Yeah, we have the outlook for quarter three. I will start, Carl Fredrik will take over. New cars in Sweden and Norway, we don't see the light in the tunnel yet. Often, when we have a recession, we are early into a recession when we are talking new cars sales. We come out often earlier than other industries, start to sell cars again. For the moment, we don't see the light in the tunnel, and we are waiting for the what will happen with the interest rate. The private, I guess for quarter three, it will be low sales on new cars. Instead, often private consumers, they start to buy more used cars instead. The fleet business, as I said, is a stable business.
You have often three years, leasing contracts, and after, you end the one, you take out a new car again. What I told for quarter two, it's a little bit the opposite in Western Europe. What we can see in Belgium, Luxembourg, we have a really good campaign for BMW and MINI there, if you compare to Sweden and Norway for the moment. We see in the tunnel, we will have some lights and see a good demand for new cars in both Belgium and Luxembourg.
Yes, perhaps I can show some light in the tunnel. We see an increasing demand for used car on the back of an underlying pent-up demand, less money for the consumer and less subsidies for electrical vehicles. Consumers choose to keep their own cars or buying a cheaper used car, typically a traditional ICE car or hybrids. Depending on the demand, it's not impossible we will experience a lack of used cars in the Nordic soon.
I think Per mentioned it earlier, when it comes to prices for used car, we see a stable situation during the coming quarters. With interest for used cars picking up, new car deliveries and our own continuous improvement, we see good demand and a solid outlook for the service business in the coming quarter. Just to be clear, in 2020, the service business represented 22% of our turnover and 58% of our operating profits, and in this quarter, 62% of the profit. I wouldn't say the service business is immune, but it's the least sensitive business area when it comes to economic downturns or upturns.
When it comes to consolidation, we're a leading player in the industry, and we will take part in the ongoing consolidation, of course, without jeopardizing our balance sheet. We have become more proactive, searching in areas we think would be a good fit for our current and future strategy. We continue to see slightly longer lead times, increased supply, and lower prices due to higher financing costs and increased requirements for investments. That's about it, operator. We can open up for questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Mats Liss from Kepler Cheuvreux. Please go ahead.
Yeah, hi. Thank you. well, looking at the numbers here and in Norway, I mean, you mentioned that there are some changes going on there. You have not only sold off operations, but you have made some reshuffling there. Could you give some sort of indication what we will see in the second half when things are sort of more stable or have been sort of settled?
Mm-hmm. Do you have the service business and the outlook for the service business in Norway in mind then with your question, Mats, or?
No, I mean, in the report, you mentioned that in Norway, you, well, you have sold off operations, but you have also made some changes there. What was the cost impact for these changes?
Mm-hmm. Yeah, yeah. What I said, if you talk about the service market, so we have good growth in the Norwegian market. Then we had some actions we took with this dismantling to open up a new one and move the body and paint shop, as I said, too, and then a little bit high cost level. This is a sort of a cost for once, you can say.
One-off.
We take a lot of actions in the market. What I didn't say is we have had a mix of job in the quarter as well, little bit with lower margin. Often I say the delivery workshops, there is a really good job for Bilia when we pre-delivery service, we call it internally, Bilia, the delivery workshops. There we have had full actions in the quarter, therefore, a little bit lower margin if you compare with the last year.
Then I should say, Mats, I mean, the next quarter, there will in Norway be a like-to-like quarter in that sense, that the divested operations are no longer included.
Yeah.
While, of course, the start-up operations will take a while before it's fully up and operating-
Yes
- at the level, compared to the other workshops.
Yeah.
so,
Mm-hmm
-that they will gradually come up to the speed
Yeah
-that they have on the other areas, of course.
Then we have the centralized business excellence team from Sweden, and we open up a new business excellence team in Norway as well. What I have told in the past is that the team go out and see some little bit worse workshop, where we are talking profitability, help the workshop manager, put a lot of actions, have an action plan, processes, concepts, and then they come back after a couple of weeks and go and help the workshop managers. It's full of different actions in the Norwegian market for the moment.
Mm. Okay. Thank you. Well, looking at the other parts of the business, you seems to do well in Western Europe there. I mean, earnings are picking up. Is it sort of a sustainable level or a sort of one-offs included there that's not?
We still have a really high backlog of new cars. In the quarter now, we delivered a lot of cars. Still we have a lot of cars in our backlog. I guess if we can get the cars from our manufacturers, no lack of components, like semiconductors, we will deliver a lot of cars in quarter three and quarter four as well. It's a really high level, if you look at the total profitability in Western Europe.
Yeah, it's of course, a very high level, right?
Yeah.
To have that on a long-term basis might be a little bit on the high side.
Mm-hmm. Good, good. I guess in Sweden,
She is a little bit more careful.
Yeah, yeah. In Sweden, I guess things are moving along well with the support from the backlog, and services is stable. That's good news, I guess. This, well, price erosion in the new car segment, especially in electric vehicles, that's something that, well, will be a headwind for some time. Yeah, you indicate that, of course. When do you think this will sort of be stabilizing again, and we will see a return on the private consumer in the new car business as well?
Yeah, it's when do we expect the private customers to go back into the new car business and especially-
Yeah, yeah.
The EV.
Yes, 10,000 kronor question. What if I look at the recession 2008 and IT crash 2000 and the bank crisis, 1992. When the private consumers see it don't will be worse, they start to buy new cars again. We have had the phenomenon with private leasing and the monthly amount you pay, sometimes it's the double today if you compare 1 or 2 years ago, because the interest rate, the government took off the climate bonus. It's much more expensive today. We see some manufacturers, they start to calculate of private leasing again because they have gone full in the factories.
If you have a full order book, we don't see it, so it's total different between the brands we have. Some, they are starting to discuss really good private leasing again. Maybe remember, the private consumers 2 years ago, 60% of all new cars to private consumer, it was private leasing. Now we try sometimes to find a solution with you pay cash 20% to take a bank loan, but still you have a residual value. We try to find new campaigns and solutions for our customers. If Riksbanken say, no more increasing of the interest rate, I guess the customer will come back again.
Yeah.
Does that answer the question?
Yeah. Yeah, thank you. Finally, just about service, I guess you have this, 10% organic growth, which is very impressive. How much of that is sort of price and how much is volume? Could you say something about that?
It's not so much price, because when we, for example, if you say we increase the price with 5%, we don't get it out in the figures you can see, because sometimes we have warranty jobs, and there is another discussions and negotiations with our manufacturers, and you have a lot of insurance, business, in our body and paint shops. We have another negotiation with the insurance companies. Often we say if we increase the price with 5%, we can see in our profit, 2.5%, the half. It's not so much price in the growth you can see in the figures here.
Is this volume increase, then some sort of pent-up demand from the consumer have been sort of resistance and then keeping the service for some time, and now it's sort of, well, need to be done? Or should we expect this to continue in the second half as well?
Well, let's see. Your, your question was, Mats, if it's some sort of that persons have not really performed their service due to lack of-
Yeah, I mean, things was a bit more difficult the last autumn, I guess.
Yeah
- with the high energy prices, which have.
Yeah.
Now you-
We don't see it. The demand today in all our four countries is better if I compare with the same period last year. You take care of your car, you repair, and you do your service. We don't see the customer jump over in the service program like that. It's a better market, the service market today, if I compare one year ago.
Yeah, okay. Yeah. Thank you.
Mm-hmm.
Let's see if there are any other-
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. The next question comes from Andreas Lundberg from SEB. Please go ahead.
Good morning. Can you hear me?
We hear you loud and clear, Andreas.
That's good. If I start with the last topic, Mats touched upon the service, you said demand is better today than a year ago. I mean, what's driving demand? That's my first question.
In the service business, you mean?
Yes.
One is, the competition is little bit lower. The smallest workshops, they close down, or they sell the big, these bigger groups, because it's really expensive to educate the mechanic for purely electrical vehicles and buy some tools and everything. We have done a really good job with a little bit older segment of cars. Often the loyalist customer we have in our workshop is often the first owner and the second owner, up to the car is six, seven years old. Today, we are really good in the third owner as well. Another is when you keep your car, instead to buy a new one, you have to repair the car as well.
I remember 2008 when my brother crashed his. At that time, some big companies, our salesman had big years, leasing cars, and said we prolong the leasing contract. Instead, a lot of repairs of the cars started instead, which was not so efficient to prolong the leasing contract.
Do you think there are any structural elements there? I mean, as you say, competition, lighter, smaller workshops, selling or shutting down, that should continue, I guess.
Yeah.
How do you see it?
It started maybe eight, nine years ago. We are fewer today. I'll say I've seen a figure, we are little bit over 3,000 workshops in Sweden today, and in the past, we were close 6,000 workshops.
Do you think that trend will accelerate given the, you know, EVs coming more into play or will it just continue as is?
Yeah. I don't know.
It depends on consolidation, obviously, driven by electrification and digitalization. Clearly, it's an ongoing consolidation.
Now switching gears to the backlog here. How long do you think it will take to say, come to normal levels to work down this backlog, given what you know today?
It depends on which brand we are talking about. It's totally different. Some of our brands, they said there are no lack of components for the moment. Other brands say they still have lack of components, which is little bit different. If I guess now, I think most of the backlog we will deliver this year.
Okay. I think you touched upon it, Per, how long does a typical recession take or do you expect to see say, some improvement in the order intake again? Thank you.
It's in Swedish.
Yeah.
Yeah.
10,000 pounds question. Yeah. Yeah. I hope we will see little bit light in the tunnel in 2024. Something can happen in the market, so and it will be totally the opposite, but I hope. Mm-hmm.
Yeah. More of a reflection question. I mean, it has been a messy, you know, few years for you, with extremely high earnings levels during the pandemic or 2021, perhaps. Now we have seen, you know, the divestments in the last year, depressed consumers and so forth. What do you think of your, the current earnings levels, given that and given the weak order intake?
Yeah. We Andreas, we never given forecast.
It's not the forecast. It's not the forecast. It's, you know.
Okay. This is more silly, you mean?
We can take it afterwards then, actually.
Yeah. Yeah.
Touch upon it. You talk about consolidation and that you may be active in at least in discussions and so forth, analysis. What do you want to acquire, if you know? What was the most highest priority for you? Thank you.
Yeah. We would like to acquire more of the Volkswagen Group. We are quite small now, 2.5% of the total sales in Sweden. There, we will hope we can acquire more and take out a lot of synergies. We have only acquired one. We would like to acquire more in Belgium and Luxembourg, especially BMW and MINI, so we can take out more synergies there. Dismantling business is really good business in Sweden and Norway, so if we can acquire more there, we like it a lot. Yeah.
Cool. Thank you so much.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad.
No more questions?
There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Thank you for that. Again, thank you all for listening in, and from Gothenburg, we wish you all a happy and a relaxing summer.
Mm-hmm.
Bye-bye.
Bye-bye.
Thank you.
Thank you.